The project „Economic valuation of natural capital from a business perspective – An instrument to internalize corporate

environmental impact” by the German Federal Environment Agency and the Federal Ministry for the Environment, Nature

Conservation, Building and Nuclear Safety.

MONITORING THE STATE OF NATURAL

CAPITAL FOR A TRULY CIRCULAR

ECONOMY – NATURAL CAPITAL ACCOUNTING AS A SUSTAINABILITY

MANAGEMENT TOOL

Tobias Hartmann

Global Nature Fund,

Brussels, 4 June 2014

CONTENTS

1. The Global Nature Fund

2. Initiatives and Companies

3. Examples

4. Business Case

5. Pro and Contra of Monetization

6. Challenges and Outlook

INTRODUCTION: GLOBAL NATURE FUND

> Non-profit, international, foundation for the protection of

environment and nature

> Main area of work: Business and Biodiversity:

> Coordinator of the European Business & Biodiversity Campaign

> Development of Biodiversity Check for Companies

> Link to Ecosystem Valuation and Natural Capital Accounting

> Study to highlight the status quo of Natural Capital Accounting and

challenges for the future

> English study can be downloaded at:

www.naturkapitalbilanzierung.de

NATURAL CAPITAL ACCOUNTING

> What are we talking about?

> Economic/monetary valuation of

> A stock of biodiversity and ecosystems

> Benefits ecosystems provide to society and economy

> External costs caused by companies

> Economic valuation has a long tradition – but not in the

business context

WHO‘S ACTIVE: INITIATIVES

> A wide range of initiatives is active in the field of natural

capital accounting

> Non-profits e.g.:

> Consultancies:

WHO‘S ACTIVE: COMPANIES

> Application by companies: Two main approaches

> 1) Corporate Ecosystem Valuation (CEV)

> Based on WBCSD Guide, tested by 14 companies

> 2) Coverage of environmental impacts along entire supply or value chain

> PUMA, Kering, Novo Nordisk, Otto Group, (Webcor Builders)

1. Planing/Scoping

- Definition of boundaries

- idenfication of most important aspects

- Development of scenarios

2. Quantification of impacts

Measurement of emissions, consumption

etc. and the resulting impacts or benefits for

nature and humans

3. Valuation

Application of economic valuation methods (e.g.

benefit transfer)

4. Embedding

Use of the results in the company

CEV - EXAMPLES

1) Corporate Ecosystem Valuation

> Application in a specific context: for a project, product or a facility. Can be detailed

and local conditions can be accounted for.

> Example Holcim: Societal value of different restoration options of gravel quarries

DOW CHEMICAL

> Comparison of technical and

ecological solutions at a facility, e.g. for

flood protection or air quality

improvement

> Additional benefits from

reforestation

> Aim: Integrating reforestation as a

compliance measure into state

regulation

CORPORATE EXAMPLES II

2) Coverage of environmental impacts along entire supply or

value chain

> Top-Down Approach

> Broad Coverage: includes raw material production

> Based on econometric models: Flows of material, traded goods and

environmental damages are linked

> Not only primary data, but also modelled data

ECOLOGICAL FOOTPRINT OF THE OTTO GROUP

ECOLOGICAL FOOTPRINT OF A INDUSTRY

BUSINESS CASE

> Why are companies interested in the value of natural capital and their externalities?

> Identify sustainability hotspots

> compare different environmental impacts

> Target sustainability initiatives efficiently

> Risk management

> Comprehensive comparison of management options

> Improved communication of sustainability performance

> Calculation of value for society a company generates

> Identification of business opportunities

Support for decision making

MONETIZATION: CONTRA

> Contra

> Nature becomes subject to the logic of the markets

> Nature becomes a commodity

> What about the parts of nature that „do not provide a value“?

> What is the correct valuation method?

> Nature is complex – the value will never be 100% right

> Valuation is not an end to itself, companies need to take action

MONETIZATION: PRO

> Pro

> „You can‘t manage what you can‘t measure“

> Standardization of different environmental impacts

> Makes communication easier

> Enables integration into management instruments

> Basis for payback systems or fiscal instruments

CHALLENGES

> More companies need to test the tools

> Start small and develop further

> Business case for companies has be clear

> Consumer awareness to justify the extra effort

> Data availability and data credibility

> Sources of raw materials are not always known

> Information on local impacts, e.g. for air pollution

> Harmonisation/Standardisation

> Using different methods makes comparison difficult

> Five studies, five estimates for the cost of CO2 emissions

> Accepted framework needs to be developed

OUTLOOK

> Natural Capital Accounting has potential:

> One metric to compare different environmental impacts

> Integration in commonly used decision making tools

> Internalize external costs and improve price signals

> Observe the safeguards:

> Valuing does not mean that you can pay to destroy

> Harmonisation should not lead to the lowest common denominator

The project „Economic valuation of natural capital from a business perspective – An instrument to internalize corporate

environmental impact” by the German Federal Environment Agency and the Federal Ministry for the Environment, Nature

Conservation, Building and Nuclear Safety.

THANK YOU hartmann@globalnature.org

More Information at: www.naturkapitalbilanzierung.de